Taking on a New York project? Study up on the following statutes

As a contractor taking on projects out of state, you should be aware of locale-specific statutes that can catch you by surprise to your detriment. Here’s a look at some New York laws you should be aware of: 

The Mechanic’s Lien Law
Unlike many other jurisdictions, the New York Mechanic’s Lien Law does not require a written contract. The time period within which a subcontractor can file a lien is relatively long—within 8 months of completion for most projects. [See New York Lien Law, Art. 2, §10.]

While many states permit a general contractor or owner to seek immediate injunctive relief for an improperly filed lien, New York limits the basis for those applications to issues that are apparent on the face of the lien notice or where the required contents of the lien have not been included, or where the lien has not been filed within the necessary time. [See New York Lien Law, Art. 2, §19.] So be aware, if you have to obtain a bond or pay monies into court to discharge a subcontractor’s lien, those funds may be tied up for quite some time.

The Trust Fund Act
All funds received by a general contractor on a public or a private project are considered by New York to be held in trust for those further down the contractual claim. [See New York Lien Law Art. 3A, §70 and 71.] Thus, if a general contractor owes money to its subcontractors and has received more money from the owner than it has paid out to the subcontractors, it may be found to be in violation of the Trust Fund Act. For instance, suppose a general contractor has been paid on a number of requisitions, made all required payments to its subcontractors, and paid itself the difference for profit and overhead.

All fine so far. Now suppose the owner fails or refuses to pay the general contractor on the next requisition. As a result, the general contractor cannot afford to pay the subcontractors. In that case the subcontractors will have a claim against the general contractor for the funds that the general contractor paid itself out of the previous requisitions for profit and overhead.

The general contractor can remedy its liability by paying over that money, if it has it. If the general contractor is unable to pay over the funds, its officers, directors or agents are guilty of a crime—larceny under the statute. [See NY Lien Law, Art. 3A, §79-A.] There are defenses that can be argued, but the general contractor and its officers, directors and agents have real exposure.

Many states have trust fund acts that apply to public projects. Fewer have trust fund acts that apply to private projects, and fewer still impose criminal liability on officers, directors and agents like New York.

The Scaffolding Act
The Scaffolding Act [NY Labor Law, §240] makes owners and general contractors absolutely liable for providing appropriate safety equipment to protect workers from falling or having things fall on them. The statute comes into play if the alleged harm flows directly as a result of gravity.

The case law provides that if a plaintiff is in fact injured as a result of inadequate, or deficient, or missing safety equipment, the owner and the contractor are absolutely liable for the injuries, regardless of any contributory or comparative negligence on the plaintiff’s part. The statute includes subcontractors under its definition of “contractors.”

Because the liability under the Act is absolute, any fall that is attributable in any way to a deficiency or lack of safety equipment will result in liability to the general contractor regardless of whether it controlled jobsite safety or not, and/or provided the safety equipment or not.

To protect itself, a general contractor should:

  1. Aggressively control, monitor, and require safety procedures by both its own employees and its subcontractors to reduce the likelihood of injuries from falls or dropped objects.
  2. Review proposed subcontractors’ safety histories, to reduce the likelihood of hiring unsafe subcontractors.
  3. Implement procedures to ensure that subcontractors are safe, qualified contractors.
  4. Coordinate with its carrier to ensure that it has sufficient coverage for such claims.
  5. Require its subcontractors to carry sufficient commercial general liability coverage naming the contractor and owner as additional insureds with primary coverage.
  6. Include indemnification and hold harmless provisions in its subcontracts. Note that those provisions won’t provide protection if the contractor itself is determined to be negligent (indemnification agreements that hold the indemnittee harmless for its own negligence, in part or in whole, are considered void and unenforceable in New York.(See NY Gen. Oblig. Law, §5-322.1.) or if the subcontractor is judgment proof, which is why it is vital that the contractor be named as an additional insured under the subcontractor’s policy.

If you’re aware of some of the differences between New York and the jurisdictions where you normally operate, you can plan accordingly and make your project a success.

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Ed Dunham practices in the area of commercial litigation with an emphasis in construction law. He represents contractors, subcontractors, and owners on both public and private projects. Ed counsels and assists clients with the negotiation and administration of construction contracts and in dealing with the claims that often arise on major construction projects. You can reach him at edunham@eckertseamans.com.

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